World Bank warns: China is a ticking time bomb

Commentary: Will Super Rich in China or U.S. be first to trigger meltdown?

SAN LUIS OBISPO, Calif. (MarketWatch) — “It’s as if 2008 never happened,” warned a BusinessWeek editorial last year. A new crash is certain to complete what the 2008 meltdown started but failed to complete — reform Wall Street.

Everybody knows Wall Street’s still playing the same speculative games that triggered the 2008 crash: Bankers and politicians never learned history’s lessons from the 2008 crash, that our “mutant capitalism” is eating at America’s soul, handicapping future generations — we will repeat them.

Today it’s even worse: Arab Spring. Occupy Wall Street. And they’re about to kick into high gear for the 2012 elections. EU banks, Europe’s great nations, the euro, all still in danger. Greece collapsed. Fears it’s not over. U.S. debt’s blowing an ever-bigger bubble. Then, last week EU Central Bank President Mario Draghi announced that Europe’s liberal social net is “gone.” That’s as gut-wrenching as Obama saying Social Security’s gone.

And just when you though it couldn’t get worse: The World Bank warns that China is headed for collapse. Imagine China crashing. The country holding over a trillion of America’s debt. The same China that’s running all over the world like a 19th century Wild West robber baron, using reserve dollars they got from years of financing America’s costly wars and cheap toys.

Adding insult to injury, China’s now using these reserve dollars to buy and hoard huge land resources, commodity futures and equities worldwide. Yes, China’s rubbing it in: China’s future is being paid for at the cost of America’s future.

China’s Super Rich and America’s Super Rich are both self-destructing

Meanwhile back home, Washington, Wall Street and Main Street are so transfixed on our bizarre 2012 election drama, “American Idol” and other titillating reality shows that most fail to see what’s happening outside our narrow vision — like the World Bank’s game-changing new report predicting China’s headed for a major collapse that will sabotage the global economy.

Yes, a collapse of China. And what’s really fascinating is how China’s predictable doomsday scenario parallels America’s. Yes, we know America’s elite Super Rich gained virtual control over Washington the past three decades. And now, ironically, that same bizarre capitalism is sabotaging the goose that laid the golden egg for China’s Super Rich too.

In that game-changing study just released by World Bank President Robert Zoellick we’re “warned of a spreading crisis,” says Reuters.

Get it? The cause of China’s problems is exactly like America’s. In both nations, a new, powerful Super Rich is aligned with politicians — will eventually self-destruct. The World Bank warns that China’s corrupt state-owned companies have created a Chinese Super Rich class aligning communist party bosses and corporate executives.

And neither has any interest in the World Bank’s call for reforming their incestuous economic system — which is exactly the same problem with America’s conspiracy between our Super Rich, Wall Street CEOs and Washington politicians.

China? Or America? Who will crash the global economy first?

“Zoellick warned another crisis was building at a time when the budgets of many developing economies had not fully recovered from the 2008 financial storm, adding to their fiscal strains,” says Reuters. No recovery? Why? Simple, because Wall Street hates reforms, loves the status quo, unregulated capitalism. Makes them rich. The same guys that pocketed the bailout cash are bank insiders, fought all reforms and are back to business as usual.

No wonder BusinessWeek said “it’s as if 2008 never happened.”

But look beyond America’s sheltered shores: The bubble is metastasizing globally, half of all developing countries’ budgets have deteriorated as deficits increased:

“If the situation deteriorates further,” warns Zoellick, “developing countries’ growth could turn down, their asset prices could drop and then their non-performing loans could increase” along with nationalism and protectionism, and a “crisis made in the developed world could become a crisis for developing countries,” consuming the entire $75 trillion global economy.

Yes, the stars are aligning again. Much faster. As Peter Coy and Rouben Farzad put it in their BusinessWeek editorial, today’s bubble-blowing resembles the four-year run-up to the 2008 crash, replicating the pre-election timing.

Remember: During the run-up from 2005 to the 2008 meltdown, leaders like Treasury Secretary Henry Paulson and Fed Chairman Ben Bernanke, were misleading everyone: Paulson, “best economy seen in my professional life.” Bernanke, “the subprime loan crisis is contained.”

“The First Truly Global Bubble: From Indian antiquities to modern Chinese art; from land in Panama to Mayfair; from forestry, infrastructure, and the junkiest bonds to mundane blue chips; it’s bubble time. … Everyone, everywhere is reinforcing one another. … The bursting of the bubble will be across all countries and all assets … no similar global event has occurred before.”

For 800 years, leaders trapped in denial, never learn … till too late

Yes, this pattern has been going on for 800 years: Why do national leaders ignore the warning signs and predictably fail to learn the lessons of history?

Grantham said it best in a Barron’s interview a couple years ago: “Why is it that several dozen people saw this crisis coming for years? I described it as being like watching a train wreck in very slow motion. It seemed so inevitable and so merciless, and yet the bosses of Merrill Lynch and Citi and even Treasury Secretary Paulson and Fed Chairman Bernanke, none of them seemed to see it coming.”

Why the blind spots? Grantham knew. Centuries of data prove leaders can’t handle the truth about bad economic news. They want happy talk and bull markets. Live in denial. Blind. They can’t see a crash coming till too late, even though the warnings are everywhere.

Grantham knows today’s leaders are “management types who focus on what they are doing this quarter or this annual budget, are somewhat impatient.”

What we need are “more people with a historical perspective who are more thoughtful and more right-brained.” But what we invariably wind up with is “an army of left-brained immediate doers,” says Grantham.

And unfortunately, with those leaders running Washington, Wall Street and Corporate America it is “more or less guaranteed that every time we get an outlying, obscure event that has never happened before in history, they are always going to miss it. And the three- or four-dozen-odd characters screaming about it are always going to be ignored.” Always.

What if history’s not cyclical, accelerates suddenly, like a sports car

Think cycles, folks. Ask yourself: Are both America and China on the cycle’s down slope? And is there really nothing we can do to stop an inevitable crash dead ahead, one that could be triggered by China or America — as early as the presidential election in 2012? Are we already repeating the same old 2008 election run-up?

Historical cycles have led to the inevitable collapse of economic societies for 800 years, warn economists Carmen Reinhart and Ken Rogoff in their classic, “This Time It’s Different: Eight Centuries of Financial Folly.”

Yes, 800 years of historical facts, painful, brutal, irrefutable, inevitable. And anthropologist Jared Diamond warns of these cycles in “Collapse: How Societies Choose to Fail or Succeed,” warns how civilizations often collapse in as little as two decades.

Worse, the end game often accelerates so fast it catches leaders by surprise, says financial historian Niall Ferguson, author of “Colossus: The Rise and Fall of The American Empire.” Listen:

“For centuries, historians, political theorists, anthropologists and the public have tended to think about the political process in seasonal, cyclical terms,” with the endings long and drawn out.

“But what if history is not cyclical and slow-moving but arrhythmic.” What if history is “at times almost stationary but also capable of accelerating suddenly, like a sports car? What if collapse does not arrive over a number of centuries but comes suddenly, like a thief in the night?”

Trapped in a 800-year danger zone, repeating the same old folly

Warning, our world’s in the danger zone again. Will you be caught off guard, unprepared? Like Paulson and Bernanke in 2008?

Remember, this historical pattern hasn’t changed in 800 years … cycles are inevitable … repeating … the destiny of nations … lessons never learned … ignored by future leaders … optimism and denial blow new bubbles … and like so many before us, for centuries, we’re in denial … optimistic about a weak recovery … blind to external dangers … praying this time is different … trapped in wishful thinking … yes, China and America … two accelerating race cars … can’t see the cliffs … who’s first?

Intraday Data provided by SIX Financial Information and subject to terms of use.
Historical and current end-of-day data provided by SIX Financial Information.
All quotes are in local exchange time. Real-time last sale data for U.S. stock quotes reflect trades reported through Nasdaq only.
Intraday data delayed at least 15 minutes or per exchange requirements.